Jim MacRae is the founder of Straight Line Analytics, a cannabis industry consulting and advisory firm which gathers available data on the cannabis market from a variety of sources and uses it to help cannabis business owners make better decisions. He recently joined our host Shango Los for a conversation about how this data is gathered and how he uses it, why it’s important for regulators to release this data, and how it can ultimately be used. Listen to the episode below or scroll down for the full transcript!
Read the transcript
Shango Los: Hi there and welcome to the Ganjapreneur.com Podcast. I am your host Shango Los. The Ganjapreneur.com Podcast gives us an opportunity to speak directly to entrepreneurs, cannabis growers, product developers and cannabis medicine researchers. All focused on making the most of cannabis normalization. As your host I do my best to bring you original cannabis industry ideas that will ignite your own entrepreneurial spark and give you actual information to improve your business strategy and improve your help and the help of cannabis patients everywhere.
Today my guest is Dr. Jim MacRae. Dr. MacRrae is the founder of Straight Line Analytics. Since 2014, Dr. MacRae has been using Washington state Liquor and Cannabis Board data merged with his own proprietary compilations of industry related information to produce analytic summaries, innovative metrics, and numerous insights for business clients, cannabis advocates and policy makers. Welcome to the show Jim.
Jim Macrae: Good afternoon Shango. How are you doing today?
Shango Los: I’m doing really well. Thanks for giving us some of your time. I know your time is valuable. I want to start out by saying how valuable your work is in the cannabis industry, and that’s why I asked you on this show. Most cannabis people just repeat what they’ve heard from others, and you are one of the only people I know who is digging into the raw data to create whole new understanding, real original thought. Are you surprised that the Liquor and Cannabis Board decided to make this information public so that you can massage it and learn from it?
Jim Macrae: I’m pleased that they have, and I’m certainly think we’re fortunate that they have. We’re fortunate to live in Washington, which has one of the stronger public records acts out there. They’re some what compelled to make information available. They have chosen to make fairly extensive information available to this industry. Sociologically, for studying it, for understanding it is huge. It’s such a new industry as a regulated industry that what we do here can really serve as a good set of lessons nationwide. The LCB and the state of Washington have been very complicit in allowing that to occur.
The first year, they basically were making weekly and monthly regular deliveries of aggregate information to people, which allowed us to understand at a high level what was going on in the industry. Really down even to the monthly business level sales data, and tax collection data, so really did a lot of good stuff with that.
About this time last year they began releasing a monthly copy of the traceability data base which is effectively … Think of it as transactional level of information in the industry. It’s every piece of product creation, and movement, and flow through the industry. From wholesale, to retail, to ultimately consumers.
That’s similar to some of the data that I’ve played with in Pharma, when I worked there. I just see a huge opportunity for understanding and then for commercial value out of this information.
Shango Los: The LCB recently changed its rules a bit, so that there was less information coming out and cannabis advocates just freaked out about it. Looking at the information that is no longer coming out. Has that really been a loss at all?
Jim Macrae: We nipped the hard parts of that in the bud very early. They were proposing language from the motivation that was very good. They were releasing too much information. They were releasing stuff that was absolutely inappropriate. Things like security plans for buildings. Certain financial account numbers that people had in their application packages. Things of that sort. Stuff that really shouldn’t be out there.
But they put in general language like, we will deny all government issued ID numbers, and stuff like that. From a database perspective if they did that, if I did not have the license number, which the bureau of licensing service gives them, and the UBI number, and things like that, I wouldn’t be able to merge any data together. In deed the database, the traceability database, many pieces of it would fall a part, in terms of the ability to use them productively.
We pushed back hard. I was one of the people who freaked on that early. They listened and they modified the legislation accordingly.
Shango Los: I really like that answer to, because it kind of justifies everybody. On the one hand, my in-elegant of the use of the word freak, it was appropriate for us to freak out, because like you said, without the key IDs to anchor the data to, you weren’t able to make sense of it, but at the same time it also makes a good point that it is important for us as citizens to have oversight of our regulators so that we can make sure we’re getting clean data, and we understand how our industry, and our states are evolving.
I know that there’s a growing movement of data wonks and activists pushing cannabis regulators to keep the information available and complete. Can you tell us a little bit about those efforts?
Jim Macrae: I’m part of those efforts I believe, but yes. I would say, Dr. Corva, Dominic from CASP is involved in that as well. Many people are. The local media are involved in that, because they value the ability of our state constitution and legislation to say you can get access to these records, and we can basically hold the government accountable for many things.
When you look at the data … This is like the citizen-metrics thing that we talked about. You’re effectively saying all this information about this new industry, which is a very emotionally, politically, medically loaded subject for many people is now available to people beyond those that are blessed explicitly by the government. The government has the data. Bio-track presumably has the data, our traceability central vendor, and the consultants of the government would have the data. If other people do then you have more sets of eyes looking at it, and you glean more information and value from it. We have many examples of that. I like that term, the citizen-metrics that we talked about earlier.
Just the stuff that I’ve created from it that is not necessarily your averages and totals. Many other people are making this available commercially as well. I tend to give the data away and do other things with services. Sales by inventory type, growth, pricing, mark-ups, how long product is staying on the shelves, how one store differs from another, when they started tying the lab results in. The potency numbers and the quality assurance, and safety numbers. That just opened up a huge window. Indeed, my interest in the traceability data base started from Dominic being given it as a public records request, but the first thing I looked at was the lab results data that was from the old cannabis transparency project. The database was made available. I was all excited. I was like a kid in the data candy store, but it’s a horribly, poorly documented database, whose linkages are not obvious.
After about two months of frustrating work on my part, Dominic struck together a team of very talented people. We were able to crack initially the lab results. We looked at that, and it was apparent … The labs basically do two types of testing, potency and quality assurance. Potency is cannabinoid levels. I don’t like that use of the term but it’s what it is right now. Quality assurance, which is things like anti-microbial assessments, foreign matter, residual solvents, extracts for inhalation, things like that.
We looked at that, and my eyes just opened. It was a clear odd pattern in the data. It was so odd that we took it to the LCB about a year ago almost now, and showed it to them. It was clearly not possible in the world as we understood it. That just spun a whole bunch of work, as which you’re aware of that I’ve published up on High Blog.
It showed the labs doing some funny things. We would not have been able to do that without the data. My take away on the data stuff, the transparency of the data is crucial. As the rest of the nation launches this, please, I look at what Colorado makes available and what Oregon makes available to their people, which are dramatically different. I’m so fortunate in yet another way to live in Washington State, because we understand … We have the ability to understand this marketplace. Like right now, I don’t think any of the other states can, and we’re doing it.
If the other states come on board, if it’s only the liquor board or the cannabis board, or the gaming commission or whatever sin thing, medical thing they put in charge of it, or new thing, please encourage those governments and regulators to make available as much information as possible to you, so that you can understand the market, and so that you can really manage the market, sell its benefits, and adequately educate people about how few concerns there really are about it.
Shango Los: That’s a powerful piece of advice. We’re going to take a short break and be right back. We’re going to talk more about the inconsistency in lab results when we get back. You are listening to the Ganjapreneur.com Podcast.
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Welcome back. You are listening to the Ganjapreneur.com Podcast. I am your host Shango Los, and our guest this week is Dr. Jim Macrae of Straight Line Analytics. Before the break we were talking about the importance of cannabis analytics, getting data dumps from the state, so that individual citizens can work the data and see what we find. One of the things that most excited me and originally attracted me to your work Jim, is that you started coming up with really interesting data around the potency and other analytics that were coming out of the state approved cannabis labs. What insights does the data show with which labs may be more or less friendly to the industry?
Jim Macrae: Please, don’t get sued Jim. I published a series of … Something like five articles late last year, between late November and New Years Eve, I believe, on what I called lab friendliness within the state. Effectively, based on the work out of the Cannabis Transparency Project I took it upon myself, once I cracked the other portions of the lab data, and updated it, to do an assessment on a window of time. I took June, July, August effectively of last year. Those three months of data. We had, I think 14 labs up and running in the state at that point. Some of them had just started, so I have really thin data from them. It was enough into the market that I figured that they would work the bugs out of their processes and all that. I took a look at three months of data. Basically all of this stuff that they report. It falls into two families. I’m going to talk about quality assurance first, then I’ll talk about potency, if you don’t mind.
Quality assurance is basically, is the stuff safe? Would be a good way to put that. It’s a series of five different families of test including such things as the moisture level of bud, the relative absence of foreign matter in the product, the pass/fail levels on a handful of anti-microbial and growing things test, and the residual solvents in extract ventilation, particularly in volatile solvent based extracts.
It’s interesting, there’s data in all of that stuff. Those are basically pass/fail results. If you exceed a threshold or something like that, you fail. If the product fails, and they are typically testing batches of flowers here, many pound lots, if it fails you can’t sell it as that. Presumably you can retest it and if you remediate if that’s possible, and if it passes subsequently you can sell it. It’s a big thing to fail a test.
I looked at the data and failure rates on some of the test were almost non-existent. They were extremely small. When I cut it by lab, there was a differentiation that was stunning. I’m not going to go into detail on that, but there were a handful of labs that really stood out as failing virtually nothing, or nothing. Over quite a few tests, in some cases. That’s in the context of a whole bunch of other labs that are failing relatively consistent level of failure for the most part, but non zero. Take that as you will.
I stored that away. That was the original observation, the moisture level. Which I won’t bore you with the details. It’s in the blog. If that’s true, if the implication of that is that some labs are just failing a lot less, there’s really only a few ways that that can happen. The one that’s kind of an interest to me is that there’s almost a financial interest in that. The product that does not fail such results can be sold, that which does fail cannot be sold in that form. Store that away.
Then I looked at the potency results. I don’t like the word potency. It’s actually four measures. CBD levels, THC levels, THC-A levels and a total metric, total cannabinoid. That was what they were reporting. That’s considered to be potency. It’s the only thing that’s on the label. Now, one of the big advantages of this industry is people knowing what’s in their product. It’s more expensive for the most part, it’s taxed more, you’re less likely to go to jail in Washington if you use it, that’s an advantage. But the big advantage is I’m not as likely to OD when I do an edible. I’m going to know the profile, at least within the four measure constraint that I just said of the cannabinoids of the product, and I’m going to know given the test that they’re doing for quality assurance that it’s less likely to hurt me or kill me along those dimensions. That’s a great thing.
If some of the labs are failing nothing. They’re either … They got extremely talented growers and absolutely pristine samples, and blah, blah, blah, blah, blah all the time, or something else is going on. With the potency levels, it turns out that in a naive market, people were basically shopping for THC in various flavors. They were looking for numbers and high THC were commanding a higher price. It was moving faster, and indeed when you start talking to the farmers and you look at the data some of the stuff that was lower in THC … Let’s just say it’s velocity through the system was slower than the other product.
It really a big thing. When you look at the potency. There’s some interesting patterns of growth over time that I won’t bore you with. It’s either extraordinary genetic manipulation or people dialing in their processes quickly, but the growth in cannabinoid levels we’ve seen is humongous.
There was a sideline in that, which is that the total cannabinoid level that was being reported was different, by different labs for a period of time, and that ultimately got corrected, but a very interesting dynamic there. That’s also on the blog. I looked at the labs that were not failing results, and the labs that were failing results, and I looked at the labs as they distributed on their cannabinoid levels. There were some labs that popped as really, almost apparently … They had higher results then anybody else did. Their distributions were odd in various forms. There was some interesting temporal anomalies in it. I scored the labs basically on levels where, if they were deferentially showing higher cannabinoid levels, and deferentially showing no failures, or very unexpectedly low failure rates for quality assurance, that all incremented up sort of a non-parametric metric I developed that a summary score friendliness, which is detailed in the last series of the blog post on where I did the report card.
There were three groupings of labs. There were some very clearly friendly labs that tended not to fail a lot of stuff. Tended to have higher cannabinoid levels reported. Then there were other, what I call, non-friendly labs, which were reporting stuff that didn’t look like what the friendly labs did. There’s a third group of labs that I just didn’t have enough data on to be able to make a judgement. So it’s about a third, a third, a third.
The most interesting thing about it is, that when you look now. I’m just beginning to do the final assessment of the six month follow up of that work, that the labs that I called friendly way back when, one of them fortunately … well, one of them is no longer in operation. It was the most friendly lab, I think somebody ultimately called them out, or they called themselves out for what they were doing.
The remaining four labs that I called friendly that are in business represent the majority of testing that is done in Washington today. Whatever they did then, certainly didn’t seem to help their market share within the lab testing space. The good thing about this is the LCB and the regulatory bodies have all been made available, or made knowledgeable of this work. They have recently struck a quality assurance working group to do oversight on the labs, and indeed start looking at some of the pesticide levels that are beginning to pop up. I’ve done some work in that space as well.
We are making a big step forward with that potentially in the quality of the product that is out there. My one big concern about it is the way people are still tending to go with potency as the proxy for quality, and value, and price on the product, and how quickly it moves. That’s relatively ignorant market. It’s like shopping for Everclear when you buy alcohol. It’s much better than a fine Cabernet, because it’s got more alcohol.
Shango Los: Similar connoisseurs, they are looking at THC, but they’re also looking at terpene profile, and all these other things which gives you more of whole experience than just getting really baked.
Jim Macrae: That’s pretty much it on the labs stuff. I’m very disappointed to be quite frank, in some of what I’ve seen in some of the lab data, but I’m glad that the LCB seems to be addressing some of these issues that were there.
Shango Los: I think that’s a really good point to make that we even have this data. We’ve had years and years of medical marijuana in Washington state. We could see anecdotally that this was happening. I had consultant clients that were labs, that I was helping them with their marketing. You can tell from lab to lab, the customer saying, “oh, you’re not giving me the potency results I’m looking for. I had this run two different places. I like their results better, so I’m going to take my product back to them.” Then you would hear talk at industry gatherings where, so and so has a special relationship with this particular lab. They make sure that their testing has got the wink, wink for higher potency rates.
It really became a belief that this was a true thing. Therefor the market started to attract to those labs. Then over time we all felt, we know between the lack of sure science at the lab, and also the fact that some of the labs may be gaming the system. Our test results may be off, but at least if we all get our results at the same lab they’ll all be off in a similar way. We saw that. It was making a mess of the medical market. It gave a lot of evidence to regulators to bring regulation into medical, so that we can have exactly the kind of information that you’re talking about now, and look at it, and take action on it.
The follow up question then Jim is that, if you saw this in the analysis and you mentioned it to the regulators, what are you seeing now? Are these same labs still providing outlier data, or have their results magically become more in line with the mean?
Jim Macrae: That’s a work in progress, Shango. What I have looked at thus far, there is a very interesting thing that’s almost looking like regression to the mean. The two periods of time that are notable are last spring. The LCB gave directive out to the labs that they were to begin reporting a value that I call THC Max, which is the fully decarboxylated THC as the cannabinoid total metric. Prior to that a number of the labs had been reporting that. I think very arguably the appropriate number, and the obvious number to report there.
Some of the labs had been reporting other things. That in some cases it was driving me nuts. I could not figure out from the three other metrics that were there what a couple of the labs were reporting. I almost had to multiple them by a number to get to where they were.
Turns out some of the labs were actually reporting … They were measuring a whole bunch more cannabinoids and they were just adding them in to the arithmetic total. Bottom line is they were, I called it in my articles, inflating their cannabinoid total numbers by up to 3% on average. Remember, those are the labs that now command the differential market share of testing in this industry. When that directive came from the LCB, virtually all of the labs that were inflating by that definition very quickly came in to line, almost over night, within a week.
Two of the labs did not. One was just errant and a little learning one that was just starting up its processes I’ll say. The other one was a big monolith that continued to report inflated values for five to six weeks. Subsequently that lab has said they got special, super, secret permission from the LCB to do so. It’s one of my friendlier labs, in my opinion.
Shango Los: Right on. We’re going to take another short break and be right back. You are listening to the Ganjapreneur.com Podcast.
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Welcome back. You are listening to the Ganjapreneur.com Podcast. I am your host Shango Los, and our guest this week is Dr. Jim Macrae of Straight Line Analytics. Before the break we were talking about all of the differences that having the proper analytics on the data have had in the market. Both helping correct the potency numbers so that patients and recreational consumers know what they’re buying, but also that everybody understands now that the market that used to be medical and unregulated is now regulated.
With these numbers we’re getting to know so much more about our market. Everything from labs to sales numbers, so that people can start projecting. The Washington market has been stifled a bit by the pendulum of approving producers, and approving retailers out of sync. There’s been this too much supply, not enough supply thing. We’re in a position now that there’s simply not enough retail stores for the amount of production that’s happening, and the amount of want by the customer and patient base. Does that bear out in the data as well?
Jim Macrae: Yeah. It’s been a bit of a back and forth as the market is launched. We’re coming up on two full years of data in this market or later this year. Initially the obvious problem was there. There’s only a few farms operating. Some of them started growing two or three months before the market originally opened. Our stores opened in July of 2014. The first stores that were open sold out immediately. Prices were through the roof. Blah, blah, blah, blah. Supply was big, supply was small. Initially, supply was small.
Then it became apparent as more stores began opening, then there were areas that were undeserved by the stores. Remember, we’re in the background in Washington of having a very robust 15 plus year old medical market with dispensaries, reasonably distributed for the population that was consuming the product.
Those were beginning to see increasing regulatory pressure. Many of them beginning to get closed down in certain areas. Some local jurisdiction began to freak out a little bit about the stores coming onboard. Will this be a societal problem? Bans and moratoria were put in place, but the bottom line is as the stores began to open over the first year of the market it was almost a linear growth in terms of licensing of retail stores month to month. The growth in sales was a little bit better than that. It was going up very, very nicely. At a micro-level … Now, remember the LCB got at this point a couple of thousand probably farmer applicants, producer applicants for the industry. They’re trying to go through and license people. Get them producing. Have them produce into the market. Get their processes right as they scale up their basement grow to 3/4 of an acre sun grown. Things like that.
The dynamics of the market were extraordinarily complicated. Then the first fall harvest came along in 2014, and thank goodness it was a partial one, because it wasn’t a mature enough market to have a lot of big ones. Some of the people nailed it. That was a bolus of product without enough stores open, so prices, at the wholesale level took a big dive. Blah, blah, blah, blah. Some of the farmers almost didn’t recover from that. That’s going into the way it was in Washington and there’s a lesson there.
When Washington started everybody was taxed at 25%. Excised tax. Farmers, processors, and retailers. They’ve subsequently changed that to the taxes now at only the retail level, but it’s 37%. That was a great thing for farmers. The farmers I say, some of them are having trouble, some of them are differentiating themselves as just superb. There’s a lot of demand and demand continues to grow.
I’ve really begun focusing on some of my work on retail the last couple of months. I think I pretty much nailed a lot of the product flow at wholesale. It’s very interesting and it’s growing tremendously, but it’s the demand at retail that’s the interesting thing and that’s where your story’s looking really good. Retail is growing like crazy right now. Of course they are closing actively the remaining medical dispensaries. They will all be closed by July 1st. At the same time the LCB has allowed an additional 222 stores, on top of the original 334 that were allocated a couple of years ago. That’s way too few for the market place, but we’ll go there another time. They based it on frankly, a piece of crap study done by BoTek. It’s embarrassing. BoTek should be embarrassed about releasing that, let alone taking money for it, but they’re making policy based on it now and it’s horrible. It grossly underestimated the size of the market in Washington state. Some of the dynamics that are going on here.
The retail is growing and it’s growing at a very good clip. I’m forecasting pretty firmly total markets sales, wholesale, and retail of over a billion dollars this calendar year in Washington. That goes well beyond what the economic forecast research council of the state is forecasting. There forecast are getting better. They’re very talented, but for some reason the legislature wants to under ball those numbers. We’re doing very well. Some of the retailers are a little worried because of the gross impact of 280E on their taxes, their margins, their operating margins.
The growth of the market is going to be stronger than people suspect. It’s looking pretty good here. Growth can be explosive, and it is explosive at least from what I’ve seen in Washington. Every way that I’ve looked at it. When a new store opens that first little bit is very big. That’s becoming less now that there’s more competing stores. They’re looking pretty good.
Shango Los: Yeah, no doubt. We all knew that there was going to be a lot more pent up demand than they expected. So much of this has been happening in the casual and black market … There were no metrics. Folks like BoTek were magic wanding it to better or lesser effects. Jim, when I started letting some of the industry leaders here in Washington know that I was going to have you on the show, they were really excited to get some free access to your analysis.
I can imagine. We’ve got listeners to all over the country. Even some outside of the country. For folks who are listening to you and they identify with, this guy understands data. I would love to be able to talk to him about my market in Oregon or Colorado. Do you work with folks? I mean, are you working on data in other states, or are you pretty much Washington centric?
Jim Macrae: I’ve been talking to people in Colorado, Oregon, and Alaska. No where near to the level that I’m doing here. Mainly because we have better data here. There are some folks particularly out in Colorado, and Oregon right now that I’d say are trying to maximize access to the information that is available in their states. There are a couple of entities that are doing a more macro-level across the states and the country that are very good work. I’m not working with them right now. I might in the future. I’m focusing on Washington, but I’m interested in branching out to the other states, because the lessons we’ve learned here will be somewhat different in those other ares, because of how they implemented the markets. If people got three market, or two well functioning markets now with lots of data, and a third one coming online, wouldn’t you like to know the good lessons out of that to make your market more effective to meet the public health and policy needs and, frankly, the financial needs of the industry people.
Shango Los: Yeah, absolutely. My dad always use to tell me that it’s fine to learn from your mistakes but it’s really great if you can learn from somebody else’s mistakes.
Jim Macrae: We’ve got a lot of them we can learn from here.
Shango Los: Yeah, so Jim that’s all the time we have for today. Thanks so much for being on the show.
Jim Macrae: Thank you very much Shango. All the best. Talk to you soon.
Shango Los: To find out more about Dr. Macrae and Straight Line Analytics, you can go to his website at highintelligence.org or you can email him at email@example.com.
You can find more episodes of the Ganjapreneur Podcast in the podcast section at Ganjapreneur.com and in the Apple iTunes store. On the Ganjapreneur.com website you will find the latest cannabis news, product reviews, and cannabis jobs updated daily along with transcriptions of this podcast. You can also download the Ganjapreneur.com app in iTunes and Google Play. Do you have a company that wants to reach our national audience of cannabis enthusiast? Email firstname.lastname@example.org to find out how. Today’s show is produced by Pat Packet. I’m your host Shango Los.